Pfizer has agreed to acquire Arena Pharmaceuticals for about $6.7 billion in a deal that validates the San Diego biotech’s plan to reshape itself around a portfolio of inflammation drugs.
Pfizer will buy Arena for $100 per share in cash, more than double the biotech’s closing price on Friday. The deal is the sector’s second-largest of the year and includes the third-highest premium, according to BioPharma Dive’s M&A database. Both boards have unanimously agreed to the transaction, which is subject to approvals from regulators and shareholders.
The acquisition hands Pfizer more assets in one of its core research areas, inflammatory diseases, where it has a portfolio of medicines led by the so-called JAK inhibitors Xeljanz and abrocitinib. Arena is developing a suite of inflammatory drugs led by an experimental pill in advanced testing for several diseases. The pill, named etrasimod, targets a signaling molecule known as sphingosine-1 phosphate or S1P, which is thought to play a role in inflammation.
S1P is also the target of Bristol Myers Squibb’s Zeposia, which was approved in May to treat ulcerative colitis, adding to another approval in multiple sclerosis. Arena believes its drug is more effective, but critical clinical trial results will have to bear out that hypothesis.
Arena's treatment is in Phase 3 testing for ulcerative colitis and Crohn’s disease — both of which are expected to produce results next year — and in a Phase 2 study for an immune condition that affects the esophagus. Another late-stage trial in eczema is currently planned. Pfizer aims to "accelerate the clinical development" of etrasimod, said Mike Gladstone, the head of its inflammation and immunology division, in a statement.
Despite competition from Bristol Myers and others, including likely cheaper biosimilar drugs in the near future, "there are no silver bullets" for these diseases, Gladstone said on a conference call.
“We think that patients will cycle through many biosimilars and then wind up on some of the other advanced medications,” he said.
Pfizer believes etrasimod will be different than other, similar drugs in part because of how it binds to its target and is broken down by the body. It "has the potential for best-in-class efficacy," Gladstone said.
Arena is perhaps best known for winning approval of an obesity drug known as Belviq in 2012. Belviq was one of three obesity drugs to reach the market in the U.S. early last decade, and each of them struggled commercially. Vivus and Orexigen Therapeutics, the developers of the two other drugs, both eventually filed for bankruptcy. Arena shares bottomed out at less than $14 apiece in 2016.
The company has since found a second life, however. It cut its losses by selling Belviq to partner Eisai in January 2017 — three years before a post-marketing study linked the medicine to higher rates of cancer. In the meantime, Arena put its resources behind etrasimod and other medicines for inflammation, cardiovascular diseases, skin conditions and more.
That plan has worked out. Etrasimod showed enough promise in Phase 2 testing in 2018 that Arena steadily built its value and launched several other studies. The company will now sell itself for a price that approaches the roughly $111 per share total it traded at just after Belviq’s U.S. approval nearly 10 years ago, while avoiding the "lingering commercial uncertainties" it would have faced had it launched etrasimod on its own, wrote RBC Capital Markets analyst Kennen MacKay in a note to clients.
The timing of Pfizer's buyout took MacKay a bit by surprise, since data from Arena's Phase 3 trials in ulcerative colitis and Crohn's disease are expected in a matter of months. Now, the burden falls on Pfizer to prove etrasimod can separate itself from Zeposia.
Still, the deal could "help entrench" both etrasimod and Xeljanz in ulcerative colitis and other diseases, given Pfizer’s commercial experience in inflammation, MacKay wrote.
Pfizer is uniquely positioned to acquire more assets as well. The company is flush with cash, with its coronavirus vaccine on track to generate around $36 billion in sales this year, a record for a pharmaceutical product. Pfizer’s COVID-19 pill, which is currently under review in the U.S., is also expected to become a blockbuster medicine. And biotech valuations have fallen sharply in recent months as the sector has underperformed the broader market.
"We plan to be very active in dealmaking," said Aaron Malik, Pfizer’s executive vice president and chief business innovation officer. "We have significant firepower."
Editor's note: This story has been updated with comments from a conference call.